To deliver on our mission of promoting compliance with Canada's tax, trade, and border laws, we employ a mix of service and responsible enforcement strategies, backed by risk management. Our overall approach emphasizes facilitating voluntary compliance. The underlying premise is that most people and businesses are honest and, given the opportunity and the right tools, will voluntarily comply with the law. This assumption is the cornerstone of our customs and tax systems, and our experience over the years supports this position.

As illustrated in Exhibit 3 , all services and activities we carry out fall along a continuum that runs from facilitating Canadians' obligations to comply with the law, where voluntary compliance is considered to be generally high, to assisted compliance that provides added checks and balances (e.g., audit) to ensure that the law is properly understood and respected, to enforcement activities aimed at counteracting tax evasion and smuggling. Underpinning the compliance continuum is a dispute resolution system that aims to provide fair and impartial redress.

Managing the compliance continuum requires us to maintain a balance between individual interests and the public good—whether we are providing high-quality and responsive services on the one hand, or responsible enforcement on the other. Finding that right balance is not an easy task, particularly in a changing environment. Wherever and whenever the risk of non-compliance is high, we must adjust our mix of program delivery strategies to ensure that, on balance:

Exhibit 4 portrays an estimate of how we have allocated our resources across the compliance continuum. Most of the $3.4 billion spent in 2001-2002 on regular program operations was focused on facilitation. CCRA-wide, approximately 55% was allocated to client services, including processing of tax returns and benefit claims, and clearance of travellers and goods. The CCRA also dedicated 23% of its total resources to assisted compliance activities such as reviews, audits, and secondary customs examinations. Enforcement activities (revenue collections, criminal investigations, searches, seizures, etc.) accounted for 22% of total resources. This year's allocation of resources is broadly similar to last year's, but resources have been added for new technology and other enforcement activities largely as a result of the events of September 11. We continue our emphasis on facilitating voluntary compliance, the cornerstone of our compliance agenda.

How we manage the compliance continuum is central to achieving our strategic outcome—that Canadians comply with tax, trade and border legislation—and constitutes one of the two major themes of this report. Our efforts in managing the compliance continuum are greatly assisted by the presence of a strong legislative foundation; the co-operation of over 1.4 million employers who withhold and remit income taxes they deduct from their employees' wages; about 2 million businesses that regularly remit GST/HST; businesses, travellers, and traders who remit other duties and taxes; and the support of our federal, provincial, territorial, and international partners.

Assessment of Compliance: We are proud of the high overall level of voluntary compliance that exists in Canada today. About 95% of all the revenues that are remitted to the CCRA are reported and paid without any audit or collection activities. This statistic becomes more meaningful when considered against the backdrop of five key compliance indicators: filing, registration, border, remittance, and reporting.

As summarized in Exhibit 5 , Canadians demonstrate a high level of compliance. Many Canadians have no legal obligation to file a tax return, for example, because their income is below the filing threshold and they are not subject to any special provisions (e.g., dispositions of capital property) that would otherwise require them to file.

While some of these individuals do file to claim social benefits, such as the Canada Child Tax Benefit and the GST/HST credit, others are not entitled to these benefits or do not wish to participate. The most recent available statistics indicate that 91.9% of all Canadians 18 years of age and over filed a timely individual income tax return during the 2000 tax year, up from our revised figure of 91.6% for tax year 1999. This represents a very high level of filing compliance when one considers that not everyone is required to file. Remittance compliance among Canadians is also high, with over 90% of taxable filers paying their reported income taxes on time during the 2000 tax year. This represents an increase of about one percentage point from our revised figure for the previous tax year.

Filing and remittance compliance was also reasonably high among corporations during the 2000 tax year. Of the estimated 1.42 million incorporated businesses in that year, slightly over a million (71.2%) filed a timely T2 return. Although these figures indicate that a fair number of corporations do not file their T2 returns on time, many of these late filers are not taxable. Among all taxable corporations, we estimate that 91.9% submitted a timely return. Most taxable corporate filers also pay their reported income taxes on time. We estimate that 91.4% made a timely remittance for the 2000 tax year, a figure that is essentially unchanged from our revised figure for the prior year.

We have developed estimates of the degree of GST/HST program registration among Canadian businesses. Specifically, we estimate that 83.2% of all Canadian businesses (including those registered on the CCRA's behalf by the ministère du Revenu du Québec) were registered for GST/HST in 2000-2001. This represents an increase in participation of 5.0% from the previous year. This represents a reasonably high degree of registration compliance when one considers that many businesses are not required to register for GST/HST, for example, because their gross revenues are below the registration threshold. Among all businesses registered with the CCRA for GST/HST, 90.3% filed their returns on time in 2000-2001, up from 89.7% in the prior year. We are not yet able to estimate the degree of remittance compliance for GST/HST, but we note that, each year, about 2.5 million businesses (including Quebec) collect over $62 billion in GST/HST on taxable sales of goods and services and remit the net amount that is due from these collections to the CCRA.

We have completed the second year of a three-year sampling cycle to measure overall rates of compliance at the border, by mode, using random samples. Different border points are targeted in each year of the cycle, and the results may vary across years for several reasons, including differences between sites and limited coverage. However, when viewed together, the results provide at least some indication of compliance by mode. Our judgement, based on these figures and other information, is that travellers and traders generally comply with border legislation.

We reviewed the books and records of a sample of importers to verify compliance with trade legislation in three priority commodity areas (textiles/apparel, steel, and footwear) in 2000-2001. A preliminary analysis of the results of our review reveals that the rates of error with respect to the classification of commodities and the valuation of commercial transactions may be higher in these areas than we initially anticipated. Further analysis will be performed to assess the reliability and representativeness of these results, and the degree of compliance in other priority trade areas with the objective of identifying and addressing sources of non-compliance with trade legislation.

Non-compliance with reporting requirements takes many forms, ranging from small and unintentional reporting omissions and errors to major levels of smuggling and wilful tax evasion. As the measurement of the total reporting non-compliance, such as the “tax gap”, is inherently costly, imprecise, and fraught with assumptions and interpretation issues, the CCRA does not directly invest in this form of measurement activity. Rather, it relies on a mix of qualitative and quantitative information derived from compliance programs and other indirect measures to assess compliance in this area. Our judgement, based on our experience, available evidence and estimates, is that non-compliance, while material, generally remains at relatively low levels—in line with prior years and compared to other countries. Much of our assurance is derived from a robust system of checks and balances ( Schedule D ) that promotes accurate reporting of income and trade data, and facilitates the early detection of reporting errors.

For each of our business lines, we provide more detailed information on our performance in promoting compliance in the Main Points section, starting on of this report.